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==Summary==The Texas Franchise Tax is a business tax imposed on all companies and corporations in return for state liability protections for doing business in the state. In 2006, the tax was rewritten in attempts to raise annual state revenue. In 2015, Governor Greg Abbott signed a legislative bill to decrease tax rates by 25%.These changes to the franchise tax make Texas a favorable business climate in terms of taxes, especially for smaller corporations.
The HB 32 bill also sets an EX tax rate of 0.331% [Table 2: insert comptroller table for 2015 vs 2016/2017]
no edit summary
=Overview=
=History=
==What is the Texas Franchise Tax?==
The Texas Franchise Tax, commonly known as the "margin" tax, is a business tax that has been in place in Texas since the 1880s. Businesses are required to pay this tax as a fee in return for liability protections under state law that allow them to be legal, separate entities from the state. It is also known as the "privilege" tax, to signify the "privilege" of doing business within the state. For most of the 1900s, the amount paid by the business depended on its net taxable capital (taxable capital gain minus loss, such as debt). But in 1991, the franchise tax was changed to include "earned surplus," which not only includes company profits but also compensation for directors and officers. The Texas Franchise tax is based off of specific rates of a business' taxable margin rather than a minimum amount. The According to Comptroller.texas.gov, the taxable margin must include at least be computed in one of the followingways:*total revenue times 70%*total revenue minus costs of goods sold*total revenue minus compensation*total revenue minus $1 million
=Recent Changes to the Franchise Tax=
In 2015, Governor Greg Abbott signed into law the legislative bill HB 32 that decreases tax rates by 25% starting from January 1, 2016.
For tax reports due on or after January 1, 2016, these changes reduce rates of the :*franchise tax:
**from 0.5% to 0.375% of taxable margin for retail and wholesale companies, regardless of size of business
**from 1% to 0.75% of taxable margin for other taxpaying corporations
*EZ Computation rate
**to 0.331% of revenue threshold of $20 million
Before this bill was signed into law, tax rates in 2015 were temporarily lowered to:
*franchise tax
**0.475% of taxable margin for retail and wholesale companies
**0.95% of taxable margin for other taxpaying corporations
*EZ Computation rate
**to 0.575% of revenue threshold of $10 million
==Competitive Advantages of Business in Texas==
Texas fosters a favorable tax environment by enforcing franchise taxes that are significantly lower than those of other states and not imposing a personal income tax. This is especially helpful for small businesses that are struggling to establish themselves and grow in their first years. Business that earn less than $20 million in annual revenue can instead file taxes through an E-Z EZ Computation Form that has a further reduced tax rate than the normal franchise tax. Furthermore, Texas has a no-tax-due threshold of $1.1 million; this , which means that businesses that have a total annual revenue of less than or equal to $1.1 million are not required to pay any franchise taxes.
=Sources=
